FAR parent takes $221M loss in Q2 as AAG consolidation continues

The loss was attributed to weaker reverse origination volume and ongoing costs associated with the AAG acquisition

Finance of America Companies (FOA), parent company of reverse mortgage industry-leading lender Finance of America Reverse (FAR), recorded a net loss of $221 million in the second quarter of 2023, which company leaders attribute to the negative impact of the mortgage rates and spreads.

While the company says its reverse mortgage arm has grown, that growth was not enough to offset increased costs associated with the ongoing effort to incorporate the assets of American Advisors Group (AAG) into its infrastructure.

Company leaders also said that its corporate expenses are continuing to trend downward, and that the full incorporation of AAG will assist the company’s financial health in the coming months.

An ‘inflection point’ for FOA

FOA CEO Graham Fleming described the company as being at “an exciting inflection point” due to recent sales and its AAG acquisition. Early this year, the company sold its commercial lending business to Roc Capital, and in July also sold its title insurance business.

“Our results this quarter illustrate our commitment to streamlining the organization and making significant investments in our retirement solutions business, which we believe is poised for long-term growth due to demographic tailwinds,” Fleming said during the company’s earnings presentation. “However, today’s cyclical mortgage market has been significantly impacted by wider spreads and higher interest rates, which plays downward pressure on our results due to negative fair value adjustments and reduced volumes.”

Graham Fleming, CEO of Finance of America Companies (FOA), parent of Finance of America Reverse (FAR).
Graham Fleming

As corporate expenses trend downward, Fleming says that the company’s cost savings is at 80% of its goal of $80-100 million as of June 30, and that additional savings of $20 million are expected by the end of the year. Still, the company’s loss in Q2 easily overtakes the posted Q1 profit of $14.6 million.

Because of the AAG acquisition, Fleming points out that FOA is now the clearly dominant player in the reverse mortgage industry.

“The combined Finance of America and AAG brands now have a commanding market share lead in reverse mortgages, with a nearly 40% share of the [Home Equity Conversion Mortgage (HECM)]market year-to-date, measured by [HECM-backed Securities (HMBS)] issuance,” Fleming said. A separate earnings release attributed the measurement to data compiled by New View Advisors, which uses both private sources and data from Ginnie Mae when publishing its reports on HMBS issuance.

FAR loan production, onboarding employees

Fleming also provided additional detail on FOA’s loan production activity across its brands, as both AAG and FAR continue to report their production separately. In Q2, FOA served approximately 2,300 customers, resulting in a 95% increase in the number of funded loans compared to Q1. The second quarter saw $447 million in unpaid principal balance (UPB), marking a 25% increase from the prior quarter.

“Our HECM volume in Q2 doubled compared to Q1, and we believe a substantial opportunity exists to sell our proprietary jumbo reverse loans through the AAG platform as well,” Fleming said.

Since the AAG deal, Fleming said that FOA has onboarded more than 400 additional employees for the company’s retail channel and to support its corporate segment, and added 150 vendors to its ecosystem. However, according to a Worker Adjustment and Retraining Notification (WARN) report for the state of California, FOA also instituted 48 layoffs at its Roseville, Calif. office that went into effect this past April.

Private-label products, looking ahead

In an interview with RMD shortly after the AAG acquisition deal was announced, now-FOA President Kristen Sieffert described the AAG marketing apparatus — ubiquitous in the reverse mortgage space — as a key component of the acquisition. On the earnings call, Fleming described how the company intends to leverage AAG marketing assets to cement its dominant industry position.

“Our acquisition of the AAG platform and the sophisticated marketing engine has the ability to further raise product awareness and increase the addressable market,” Fleming said. “Despite a difficult economic environment and amid a complex integration [process], we are starting to see positive traction in our pipeline and operational processes.”

The sale of HomeSafe through the AAG platform will be something of a homecoming. Prior to the AAG/FOA deal, FAR’s suite of private-label reverse mortgages, called “HomeSafe,” was sold to AAG customers through a correspondent partnership established in 2018. That partnership also produced a television ad starring AAG spokesman Tom Selleck, but it was suspended in late 2022, just a couple of months before the acquisition deal was announced.

Fleming added that the company’s earnings-per-share goals are not likely to be met this year.

“Looking ahead to the remainder of 2023, we do not expect to achieve our previous full-year guidance of $0.09-$0.12 adjusted earnings per share,” he said. “That said, we believe the earnings potential of the company is $0.40 to $0.50 per share once the AAG acquisition is fully integrated and the market stabilizes.”

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